State lawmakers offer bills to revamp foreclosure

FORECLOSURES 6 bills overhaul loan paperwork

Published 4:00 am, Thursday, March 1, 2012

California would revamp foreclosure practices with more protections for homeowners under six proposed laws announced Wednesday by Attorney General Kamala Harris and Democratic legislators.

The legislation was introduced almost three weeks after Harris and 48 other state attorneys general negotiated a $25 billion settlement with the nation's five largest banks over sloppy foreclosure paperwork known as robosigning.

The proposed laws, collectively called the Homeowner Bill of Rights, would enshrine many of that pact's terms into law, extending them to all Californians, not just customers of the five banks.

"What we are doing is taking the best of that settlement, bringing it to California, but doing it in a way that will have lasting impact and be on our books and change the course so that this does not happen again," Harris said at a Sacramento news conference, flanked by state Senate President Pro Tem Darrell Steinberg, D-Sacramento, and Assembly Speaker John Pérez, D-Los Angeles, and nine other lawmakers.

Ban dual tracking

The bills address some practices that struggling homeowners have decried by requiring banks to establish a single point of contact for borrowers seeking aid and banning a practice called dual tracking, in which banks pursue foreclosure while negotiating with homeowners over a loan modification. They require servicers to show documents proving they have the right to foreclose. They establish fines of $10,000 for knowingly filing documents that contain inaccurate information.

The package also creates more ways for cities to combat blight created by vacant properties and gives tenants in foreclosed properties 90 days, up from the current 60, before they can be evicted.

Special grand jury

A new $25 fee on each notice of default would be earmarked for the attorney general's office to investigate and prosecute real estate fraud, while another bill would authorize a special grand jury to look at such crimes statewide.

Consumer advocates applauded the proposals.

"It's important not just as a matter of fairness to borrowers, but also for faith in the processes of law that we establish more clear-cut and enforceable standards around servicing, loan modifications and foreclosures going forward," said Paul Leonard, California director of the Center for Responsible Lending.

Banking industry representatives did not immediately comment on the specific ideas, but warned that new laws could hurt the economy.

"California's lending community remains committed to both helping homeowners and protecting affordable access to mortgage credit," the California Mortgage Bankers Association said. "It is critical that any new legislation take into account our state's fragile economic condition. Any introduction of new legislation and regulation must include a realization that markets and consumers need stability in order for lasting economic recovery to take hold."

The California Bankers Association, another industry trade group, said the bills may conflict with federal efforts to tackle the foreclosure crisis.

Sen. Mark Leno D-San Francisco, a sponsor of the bill that bans dual tracking, said its provision allowing borrowers to sue over wrongful foreclosures historically has met fierce industry opposition.

"Currently they don't even have to say, 'Whoops, sorry' if you lose your home because they made a mistake," he said. "This puts some teeth into the law."

Leno and other lawmakers have championed similar reform measures over the past few years that failed to pass or were significantly diluted. What's different this time?

"The political landscape relative to these issues completely changed with Kamala Harris' success in her negotiations (over robosigning) given that the banks have already agreed" to many of these provisions, Leno said in an interview.

Steinberg had a similar take. Before now, "we did not have the template of the national settlement," he said at the press conference. "The logical extension of this settlement is to say if it's the right resolution for some homeowners in distress, it ought to be right for all homeowners in distress."

The bills are being introduced simultaneously in the Senate and Assembly, which lawmakers said should help expedite them.

S.F. assessor's report

The proposed legislation comes on the heels of a report by San Francisco Assessor-Recorder Phil Ting that found widespread irregularities with foreclosure paperwork.

"This is a phenomenal start to addressing many of the issues we identified," Ting said. "My biggest concern is it appears the laws already on the books aren't being followed. We need to sit down with the industry and really understand what their concerns are and why they haven't been following the process. My hope is that these laws will address that."

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